If you work hard on your investment strategy and surround yourself with people with similar long-term goals, I am sure that you have discussed your overall investment strategy with some of your peers at times.  I am not suggesting that you discuss $dollar$ amounts, but just compare your overall investment strategies.  When the subject of owning rental property and real estate is discussed, everyone begins talking about all the negatives associated with owning rental property, otherwise known as “Nay Sayers” or “Chicken Littles”.

 Concerns with Owning Rental Property

• Finding a Tenant
• Realtor Fees Associated with High Turnover
• Screening Tenants
• Collecting Rent
• Dealing with Repairs
• Tenants Damaging the Property
• Tenants Stealing Appliances
• Emotional Ties with Tenants
• Evicting Tenants if Needed
• Fees Associated with Property Management

 Although the concerns above are valid, my primary concern is that I do not want another “J-O-B.”  I am primarily looking for investments that generate passive income.  My goal is to be financially free and generate ample monthly income to retire without having to physically work for my money.  The only way owning rental properties can be truly passive income is if you find a competent property manager.   I would prefer to screen a competent property manager rather than multiple tenants.

 Finding a Tenant – When looking for a property manager, I found one with a track record of minimizing the days that the rental property is listed on the market.  There are three factors for minimizing the number of days that your rental property is on the market.  The first factor is that your rental property has to be clean and in a safe neighborhood.  My wife and I are committed to keeping our rental properties in conditions that we would want to live in.  If I cannot afford to properly maintain a rental property as if we lived in the home, we will sell the property and reallocate our resources to another area or market.  The second factor is understanding the average rental prices in the area.  If your monthly rental fee is higher than the market, your days on the market may be higher than average.  The third is finding a property manager that has a good network and reputation with the tenants.

 Relator Fees Associated with High Turnover – The risk of high turnover is a risk that all owners face while owning rental property.  I try to focus on the things that I can control.  Control is a very important factor of why I prefer rental property as my primary source of passive income.  A couple of the major factors that we can control are:  How well the homes are maintained and the monthly rent of the unit.  If the rent is too high for the market, you may have high turn over simply because your monthly rent is not competitive.  We also try to supply homes that are clean and well maintained.  After purchasing any home, we typically live in the home a weekend or two testing to make sure that the home is setup to our standards.

 Screening Tenants – The property manager that I use does a good job in screening potential tenants.  The first step in the screening process is to explain the expectations of the tenants.  I know from talking to many realtors that they do not recommend working through my property manager because of the rules and expectations that the property manager requires of the tenants.  I strongly feel that this is a very good quality of a property manager.  By setting high standards for your tenants, many of the riff-raff will not even apply.  I am not bothered by the realtors that complain, because they may not have my best interest at heart.  I assume that they are only focused on the revenue that the realtor generates for himself or herself by finding the tenant.  Once the tenant signs a contract with the property manager, the tenant must pass a background check and the credit of the individual must be ran.

 Collecting Rent – Collecting rent has not been a problem so far.  When the rent is late the renter is charged with additional fees associated with administration fees dealing with the late rent.  Anytime a tenant is tardy with a monthly payment, an automatic walk through of the property is mandatory.  The additional fees and the walk through have been enough to keep the tenants from repeated late payments.

 Dealing with Repairs – Most property managers have a network of repairmen to take care of the repairs.  To remove any concern of being taken advantage of, we decided to maintain a home warranty on all of our properties.  The contractor that the home warranty uses is loyal to the home warranty company.  If a problem with the home is indeed the responsibility of the owner, the home warranty covers the work.  If the problem is created by the tenant, the tenant is responsible for paying for the services.

 Tenants Damaging the Property – Property damage is a risk that comes with owning rental property.  I hope that the screening process helps limit the risk of getting a tenant that is not respectful to the property.  We also insist on walkthroughs of the property every 6 months.

 Evicting and Emotional Ties with Tenants – Using a property manager is a good way to eliminate or minimize the contact with the tenants.  I know from experience that separating the emotions from dealing with tenants is very difficult.  My wife and I are compassionate and understand that everyone has hard times.  The tenants may not realize that we have obligations as owners to pay our responsibilities for outstanding loans.  Although I maintain enough excess cash to ensure that we do not miss a mortgage payment, I do not want my compassion to create a financial problem by not meeting my financial obligations; therefore, I use a property manager to help take the emotions out of our decisions.

 Fees Associated with Property Management – I am a firm believer that we should not spend any additional money on investments for convenience.  If we cannot associate a value to the cost we will not incur the costs.  I do not want an additional “J-O-B.”  If I did not have a property manager, I would not be able to invest in rental property.  The time needed to properly manage the property would take away from my primary “J-O-B,” which is my source of capital for investing.  A property manager is a must for me to continue to invest in rental properties.  A property manager deals with multiple situations in a given day.  A good property manager will add significantly more value than the fees they charge.

 If you have been interested in investing in rental property but hesitated due to some of the same concerns listed above, I hope this post helps to ease some of the concerns.  Do not hesitate any longer.  You cannot make money with capital setting in the savings account.  Actually you are losing money when you factor inflation into the equation.  Do your research and interview several property managers and trust your instincts.  Remember your first transaction or step is the hardest to make when it comes to investing.